Serbia's budget revision sparks debate: Growth stimulus or election campaign funding?

Serbia's latest budget revision has reopened a critical debate: will the government's increased spending stimulate economic growth, or is it a thinly veiled attempt to fund an upcoming election campaign?

Economist Ivan Nikolić, who also chairs the National Bank's Governor's Council, views the revision more favorably. He contends that higher-than-planned revenue collection has created fiscal space for increased expenditures. Nikolić believes these outlays, directed towards social benefits and investments, will bolster domestic demand. "The motive for this rebalance was revenue collection," Nikolić stated, noting that revenue grew by 8.6% in real terms by June, with inflation also lower than anticipated. This surplus, he explained, can support demand and help maintain economic growth potentially above three percent, especially as external demand and the Eurozone's condition limit growth, alongside chronic domestic industrial constraints related to energy.

However, Dušan Nikezić, an economist and member of the opposition Party of Freedom and Justice (SSP), strongly disagrees. He labels the budget a "classic pre-election populist budget," asserting that all spending increases are timed to coincide with the expected October elections, aiming to buy votes. "This is a pre-election budget also in the sense that it allows Vučić to get another billion euros for the campaign and the attempt to buy votes," Nikezić claimed.

Nikezić points to specific budget items as evidence, such as doubling allocations for "Putevi Srbije" (Serbian Roads) to over 200 million euros, which he says will fund promises of road construction during the campaign. He also cites increased benefits for pensioners and social welfare recipients as vote-buying tactics. "These are all benefits aimed at buying votes," he asserted.

Furthermore, Nikezić disputes Nikolić's assessment of fiscal surplus. "I would not agree that we have a surplus when we have a deficit," he countered, highlighting a budget deficit exceeding three billion euros, the second-largest in Serbian history after 2020. He stated this deficit will be financed through new borrowing, pushing the national debt to 42 billion euros. Nikolić, in contrast, defended the deficit, noting it was 1.1% of GDP in the first half of the year, which he described as the best result in Europe at the time, far lower than the five percent deficits seen in many other European countries.